Income Tax Act 2007

HC 15 Taxable distributions from non-complying and foreign trusts
When subsection (2) applies

(1)

Subsection (2) applies for a trust that is a non-complying trust at the time a distribution to a beneficiary is made.

Taxable distributions: non-complying trusts

(2)

The distribution is a taxable distribution to the extent to which it is not a distribution of—

(a)

beneficiary income; or

(b)

a part of the corpus of the trust; or

(c)

a payment or a transaction that represents a distribution of the corpus of the trust.

When subsection (4) applies

(3)

Subsection (4) applies for a trust that is a foreign trust at the time a distribution to a beneficiary is made.

Taxable distributions: foreign trusts

(4)

The distribution is a taxable distribution to the extent to which it is not a distribution of—

(a)

beneficiary income; or

(b)

a part of the corpus of the trust; or

(c)

a profit from the realisation of a capital asset or another capital gain; or

(cb)

a foreign superannuation withdrawal; or

(cc)

a pension; or

(d)

a payment or a transaction that represents a distribution of either the corpus of the trust referred to in paragraph (b) or a capital gain referred to in paragraph (c).

Determining amount of gain

(5)

For the purposes of subsection (4)(c),—

(a)

the profit or other capital gain does not include a gain that must be taken into account for the purposes of determining an income tax liability:

(ab)

if the trustee is not a trustee of a trust referred to in paragraph (ac), the profit or other capital gain does not include an amount of capital gain (the gain amount) that is derived by the trustee through a transaction or a series of transactions if—

(i)

the transaction or series of transactions is between the trustee and an associated person who is not a natural person or corporate trustee; and

(ii)

the gain amount is greater than the capital gain that the trustee would derive from a transaction at market value:

(ac)

if the trustee is a trustee of a trust, for which a CFC is a settlor and no person is treated as a settlor under section HC 28(3) or (4), the profit or other capital gain does not include an amount of capital gain that is derived by the trustee through a transaction or a series of transactions between the trustee and an associated person:

(b)

the amount of the profit is determined after subtracting any capital loss that the trustee incurs in the income year in which the amount was derived.

Certain capital gains for trustee of foreign trust

(5B)

For a foreign trust, profit described in subsection (5)(ab) or (ac) is income of the trustee for the purposes of section HC 16.

Source of income from capital gain

(5C)

The source of a capital gain that is included in a taxable distribution is determined for the trustee under section YD 4 (Classes of income treated as having New Zealand source) as if the capital gain were an amount of income.

Source of capital loss

(5D)

The source of a capital loss for the trustee is given by subsection (5C), applied as if the capital loss were a capital gain included in a taxable distribution.

Amounts not subject to ordering rule

(6)

To the extent to which a distribution is made from a trust that is not a complying trust by disposing of property at less than market value or providing financial assistance or services to a beneficiary at less than market value, the distribution is a taxable distribution and is not subject to the ordering rule in section HC 16.

Inadequate records

(7)

If the records of a trust that is not a complying trust do not allow an accurate determination of the elements of a distribution under section HC 16, the distribution is a taxable distribution.

Defined in this Act: amount, associated person, beneficiary income, complying trust, corpus, distribution, financial assistance, foreign superannuation withdrawal, foreign trust, income, income tax liability, income year, non-complying trust, pay, superannuation fund, taxable distribution, trustee

Compare: 2004 No 35 ss HH 6(2)(c), (3), OB 1 “taxable distribution”

Section HC 15(4)(cb): inserted, on 1 April 2014, by section 83(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).

Section HC 15(4)(cc): inserted, on 1 April 2014, by section 83(1) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).

Section HC 15(5)(a): replaced, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Section HC 15(5)(ab): inserted, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Section HC 15(5)(ac): inserted, on 18 March 2019, by section 209(1) (and see section 209(3) for application) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Section HC 15(5B) heading: inserted, on 18 March 2019, by section 209(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Section HC 15(5B): inserted, on 18 March 2019, by section 209(2) of the Taxation (Annual Rates for 2018–19, Modernising Tax Administration, and Remedial Matters) Act 2019 (2019 No 5).

Section HC 15(5C) heading: inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15(5C): inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15(5D) heading: inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15(5D): inserted, on 23 March 2020, by section 137(1) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15(6): amended, on 23 March 2020, by section 137(2) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15 list of defined terms 1973 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 15 list of defined terms 1988 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 15 list of defined terms 1990 version provisions: repealed, on 1 April 2010, by section 594 of the Taxation (International Taxation, Life Insurance, and Remedial Matters) Act 2009 (2009 No 34).

Section HC 15 list of defined terms financial assistance: inserted, on 23 March 2020, by section 137(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).

Section HC 15 list of defined terms foreign superannuation withdrawal: inserted, on 1 April 2014, by section 83(2) of the Taxation (Annual Rates, Foreign Superannuation, and Remedial Matters) Act 2014 (2014 No 4).

Section HC 15 list of defined terms income: inserted, on 23 March 2020, by section 137(3) of the Taxation (KiwiSaver, Student Loans, and Remedial Matters) Act 2020 (2020 No 5).